“Weathering the storm” and “holding steady” are expressions you hear a lot these days when referring to Oklahoma City’s commercial real estate markets, and the local industrial scene is more of the same.

 

According to two new reports from Price Edwards & Co. and CB Richard Ellis/Oklahoma, industrial vacancies continue to face mounting challenges, while rents are being pressed downward and landlords are getting more aggressive in courting tenants.

 

More industrial tenants are demanding short-term leases, making it especially difficult to get an accurate reading on the market.

 

According to Price Edwards, which tracks 11.4 million sq. ft. of investment-grade industrial buildings over 35,000 sq. ft., vacancy jumped from 12.9% at yearend 2009 to 19.8% in mid-year 2010.

 

A similar mid-year report from CBRE/OK notes that the overall vacancy rate is just below 11%, or the same as yearend 2009. The major difference is CBRE/OK tracks a larger universe of local industrial properties totaling 98.7 million sq. ft.

 

Much of the downward trend in vacancy in the Price Edwards report is attributed to the bulk warehouse sector (defined as buildings with clear heights of 24 feet or more), which saw vacancies increase from 17% in 2009 to 23.3% in 2010. This increase is due partly to vacated space and partly due to new space availability at the re-furbished Will Rogers Business Park, the former Dayton Tire plant.

 

There was better news in the flex space market (with heights of 18 feet), where vacancy actually decreased, from 10.2% in 2009 to 10.5%, according to Price Edwards. The improvement was fueled  by the Southeast submarket, where flex is filling the gap created by a small office building base generally located away from new development in the area.

 

Vacancy in the service warehouse sector (with heights of 18-23 feet), traditionally the most volatile of the industrial product types, increased from 16.7% in 2009 to 21.5%. “Rent sensitive tenants continue to drive this market sector, and the older warehouse properties have been impacted by the bargain rates available in more modern bulk warehouse facilities,” notes Price Edwards.

 

According to CB Richard Ellis/Oklahoma, historically, OKC vacancy statistics have been skewed toward larger space vacancies above 100,000 sq. ft. However, over the last six months, large-space tenants have been more active, and are the only category to post a positive absorption over the last six months. Modest vacancy increases and negative absorption have occurred in spaces down to 10,000 sq. ft.

 

Two notable transactions illustrate the point – the major lease of a portion of the Will Rogers Business Park, to Video Products Distributors, and the lease of approximately 323,000 sq. ft. of the former Lucent Technology plant to CelluTissue, a paper products manufacturer.

 

Smaller space users are being more negatively affected by the slowed national economy, and the most significant increase in OKC industrial vacancy occurred in the market for 60,000-99,999 sq. ft. There, more than a quarter million square feet of new vacancy hit the market in the first half of 2010. The majority of our new vacancy in the mid-size ranges is attributable to national and regional users consolidating their operations into larger markets rather than to the failure of locally-based businesses.

 

“Most industrial users in our market remain viable. They just aren’t presently in expansion mode due to the uncertainty over the economy and over the anticipated negative impact of governmental activity on their businesses,” notes the CBRE/OK report.

 

Given the market dynamics, there is no new industrial construction under way, and local developers have shelved any plans for new development. That bodes well for the OKC market.